Bankrupt Wall Street megabanks are receiving from the Fed probably the same amount of bailout money, or even more, as in 2008-2010, according to calculations by Pam Martens and Russ Martens, authors of the Wall Street on Parade site. The only difference is that the bulk of the bailout is supported by the Fed repo facility, whereas in 2008 it was supported by the Primary Dealer Credit Facility.
“What we … know about the repo facility, based on previous data released by the Fed, is that from September 17, 2019 through the end of the program on July 2, 2020, a cumulative total of $11.23 trillion was funneled to the Wall Street trading houses. That’s 70 percent of the total $16.1 trillion that the GAO audit tallied up as the cumulative total for the Fed’s 13(3) emergency lending programs during and after the financial crisis of 2008.”
But the repo facility is not the only Fed bailout operation currently; there are 16 more lending facilities, three of which are the most opaque ones. These are a new Primary Dealer Credit Facility (PDCF), the Commercial Paper Funding Facility (CPFF) and the Money Market Mutual Fund Liquidity Facility (MMLF), all of them announced in March 2020.
Under the Dodd-Frank Law, it is only on March 31, 2022 that the first data on the amount borrowed and the names of the banks will be published. March 31 is also the date for the Fed to release data on the use of its repo facility in Q1, 2020.
One of those emergency lending facilities, the PDCF, has a criminal precedent. When it was launched for the first time in 2008, it gave out trillions of dollars in cumulative loans to megabanks, accepting worthless collateral in exchange. In other words, it acted illegally, according to the Fed statute.
“When the audit by the GAO was released on July 21, 2011 (exactly one year after the signing of Dodd-Frank),” wrote the Martenses, “it showed that the Primary Dealer Credit Facility had sluiced $8.9 trillion in cumulative loans to Wall Street trading houses. Instead of good collateral for the loans, as the Fed is required to do under law, it sometimes accepted stocks and junk bonds as collateral at a time when prices of both were collapsing. In addition, the PDCF loaned 64 percent of the entire $8.9 trillion in cumulative loans to just three Wall Street firms: $2.02 trillion to Citigroup; $1.9 trillion to Morgan Stanley; and $1.775 trillion to Merrill Lynch.”
“... If the Fed has propped up the same zombie banks for the second time in 11 years, the Fed must be stripped of any and all oversight of Wall Street banks and any and all ability to create electronic money out of thin air to bail them out.”
The question is: what will happen to those megabanks, if the Fed starts to seriously reduce liquidity, as indicated at the last Fed board meeting in December?
